The General Data Protection Regulation (GDPR) and the Know Your Customer (KYC) obligations are two important regulatory frameworks that businesses need to adhere to. Although these two obligations have similar objectives, they also have discrepancies that can make it challenging for businesses to comply with both at the same time.
In this article, we’ll explore the key differences between GDPR and KYC obligations and how they can create challenges for organizations.
The GDPR, which came into effect in 2018, is a set of regulations that protect the privacy of individuals within the European Union (EU). It applies to all businesses, regardless of their location, that collect or process data of individuals within the EU. The GDPR mandates that businesses must obtain explicit consent from individuals before collecting and processing their personal data. Additionally, businesses must ensure that the data collected is used only for the intended purpose and that it is secure.
What are KYC obligations?
On the other hand, KYC is a process used by financial institutions and other businesses to verify the identity of their customers. KYC obligations require businesses to collect and verify personal information such as name, date of birth, address, and ID documents. The purpose of KYC is to prevent money laundering, terrorist financing, and other financial crimes.
The discrepancy between GDPR and KYC obligations arises when businesses attempt to balance the two.
How to reconcile the discrepancies between GDPR and KYC obligations
While GDPR requires businesses to obtain explicit consent before collecting and processing personal data, KYC obligations require businesses to collect personal data without the explicit consent of the individual. Additionally, GDPR mandates that businesses delete personal data once it is no longer necessary for the intended purpose, whereas KYC obligations require businesses to retain personal data for a certain period of time.
To reconcile these discrepancies, here are some suggested strategies that businesses can consider to comply with GDPR and KYC:
1. Collect only the data you need – GDPR requires companies to collect only what is necessary for a specific purpose. By limiting data collection to necessary data for KYC, companies can ensure compliance with both regulations.
2. Obtain explicit consent – Under GDPR, companies must obtain explicit consent from individuals to collect and use their data. Companies must let customers know exactly why the data is being collected and how it will be used.
3. Encrypt sensitive information – To comply with GDPR, companies must take measures to protect personal data, including encrypting sensitive information. Proper encryption helps prevent unauthorized access to information and protects customer privacy.
4. Implement security measures – GDPR mandates that businesses implement proper security measures to safeguard personal data from unauthorized access, disclosure, or destruction. As a result, corporates should concomitantly adhere to KYC regulations and deploy robust security.
As shown above, the discrepancy between GDPR and KYC obligations can create challenges for organizations that need to comply with both frameworks. While both frameworks aim to protect sensitive information and individuals’ rights, they often conflict with each other when applied together. As a result, it is critical that organizations ensure that they are aware of the requirements of both frameworks and implement appropriate measures to comply with them, while maintaining the confidentiality and security of personal data.